6 Things You Need to Know About College Loans

I’ve been getting emails from parents lately who are stressed out because the financial aid packages that they’ve received for their high school seniors are terribly inadequate.
On the flip side, I’ve been getting effusive emails from parents who did a great job of matching their kids with the sort of schools that would give them the best aid packages possible. I wish everybody was in that camp!
Parents with inadequate financial aid packages can negotiate to try to get more money and I’ll post something on that later this week. Most  families, however, will have to borrow money. Last week I wrote about Stafford Loans, PLUS Loans and home equity lines. See the links:

Parents Borrowing for College

Stafford Loans: Borrowing for College

More Advice on College Loans

Today I’m going to share a few more student loan tips:
1. Students should max out their federal student loans before anybody ever thinks about borrowing through a private college loan. Federal student loans are superior in every way.
2. Only college kids are eligible for federal student loans, but parents can make the payments.
3. Many families are confused about whether they possess federal or private loans. One reason for this confusion is because in the past many families had to turn to outside private lenders for their federal loans. These private lenders then also encouraged these families to sign up for their brand of private loans.
This arrangement not only caused confusion, but it also discouraged families for shopping for the best private loans. Thanks to inertia, families found that it was easier just to go with the same lender, such as Sallie Mae, Bank of America or Wells Fargo, that was handling their federal student loan. Mercifully this can’t happen anymore because federal students loans, since July  2010,  are only offered through the direct federal college loan program.
4. Before looking at private loans, check on the availability of a home equity line of credit or a federal PLUS Loan. Private loans should be a last resort!  With a home equity  line or a PLUS loan, however, the parent is on the hook. With a private loan, the student can be responsible so that’s why some parents gravitate to private school loans. Here is the federal home page for the PLUS Loan.
Tougher underwriting standards, however, almost always require that an adult cosign for the private loan for a student.
5. When a parent with good credit cosigns a private student loan this will put the borrower into a better tier of pricing.
6. Do not over borrow! No school is worth it if you have to borrow heavily! Not a single one! (Please note my use of exclamation points.)
Lynn O’Shaughnessy is the author of The College Solution, an Amazon bestseller. She also writes a college blog for CBSMoneyWatch. Follow her on Twitter.
Student loan image by NoHoDamon. CC 2.0.

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